LPE Blog: Saving Industrial Policy from Shareholder Primacy

Recent industrial policy has the potential to accelerate decarbonization and increase America’s productive capacities. However, unless we build limits on corporate value extraction into the regulations and agency practices that will guide the contracts made between the government and private sector in the coming years, we risk the diversion of public investment to private coffers.

Employers should be held accountable for worker surveillance, employee status

Earlier this week, the Center for Law and Social Policy and Governing for Impact submitted a comment to the U.S. Department of Labor (DOL) explaining our support for its proposed rule on the independent contractor versus employee classification. Our comment is supportive of the DOL’s proposal. Specifically, it applauds the Department’s decision to affirm its long-standing use of the multi-factor “economic realities” test and to explicitly discuss the impact of worker surveillance technology on a determination of employer “control.”

The proliferation of independent contracting, gig work, and worker misclassification has imposed significant harm on workers in low-wage industries and has undermined federal and state labor protections. The 2017 Bureau of Labor Statistics (BLS) Contingent Worker Supplement to the Current Population Survey, which measures workers in alternative work arrangements, estimated that 14 percent of gig workers earned less than the federal minimum wage and 29 percent earned less than the applicable state minimum wage. Gig workers face economic insecurity and rely heavily on public benefits. According to the BLS, 30 percent of gig workers used the Supplemental Nutrition Assistance Program (SNAP) within a month of the survey, which is twice the rate of employee-designated service sector workers. Accordingly, 1 in 5 gig workers could not afford enough to eat, and 31 percent of gig workers could not afford to pay the full amount of their utility bills in the month prior to the survey.

It is crucial that DOL’s Wage and Hour Division enforces the Fair Labor Standards Act (FLSA) evenly and fairly—and that the “economic realities” of the working arrangement determine independent contractor versus employee status. One of the six factors that contribute to this analysis is a consideration of the level and nature of control the employer has over the worker. Companies classify workers as independent contractors, in part, to avoid the costs and liabilities associated with having employees (e.g., paying a minimum wage and compensating them for overtime, as required by the FLSA). Simultaneously, some of these companies implement worker surveillance technologies that provide them the authority to exert control over their supposed independent contractors. If companies benefit from workers’ labor and integrate it into the company’s overall enterprise through control and supervision, that should weigh in favor of a finding of employee status.

Moreover, and as the proposal notes, the rule should weigh in favor of employee status regardless of whether the supervision is technological or in-person. While the “economic realities” test does not require direct supervision to find employee status, when it is present, that supervision is often key to courts making such a finding. Worker surveillance technology makes this type of supervision possible even without a supervisor physically present. Previous FLSA litigation helpfully illustrates why.

For example, a 2017 FLSA case that framing and drywall installers brought against their employer resulted in the Fourth Circuit highlighting the daily, on-site supervision of the workers as key evidence to find that they were employees. The supervision went well beyond the “oversight necessary to ensure that a contractor’s services meet contractual standards of quality and timeliness.” Instead, the supervisors provided frequent feedback and instruction about the pace and quality of their work. The supervisors repeatedly held meetings to direct the workers on which projects they needed to complete and the methods by which they should do so. Imagine if the employer had used worker surveillance technologies to accomplish these same objectives. Rather than requiring an in-person supervisor to provide frequent feedback about the pace and quality of work the employer could have implemented which would direct the workers to their next projects, optimize their route, and alert management to deviations.

As this example illustrates, worker surveillance technology replicates the same types of control that in-person supervision does. The presence of such surveillance should weigh in favor of employee status in the same way that in-person surveillance would.

Misclassification of workers as independent contractors is costly to workers, the government, and responsible employers who correctly classify their workforce. As our comment explains, the DOL’s proposed rule reaffirms the centrality of economic dependence based on multiple factors to determine employment status in a manner the DOL, Wage and Hour Division, and courts have used for decades. This would reduce the confusion for workers and employers arising from the anomalous rule proposed by the previous administration and benefit the public as a result.

Emily Andrews is the director of education, labor & worker justice at CLASP.

Lorena Roque is a senior policy analyst at CLASP.

Reed Shaw is a policy counsel at Governing for Impact.

Worker surveillance enables joint employer control

Last week, Jobs with Justice and Governing for Impact submitted a comment to the National Labor Relations Board (“NLRB”) explaining our support for its proposed rule on joint employment and requesting that the final rule take into account the role that surveillance plays in that determination. With increasing frequency, companies contract out their workforce to third-parties — an attempt to evade liability under workers rights statutes, including the nation’s labor laws — yet deploy surveillance technologies to maintain a tight grip over how these, supposedly third-party, workers do their jobs. Our comment asks the NLRB to close this loophole.

Under the National Labor Relations Act (“NLRA”), workers can bargain with and file labor law complaints against their employer. In the modern economy, though, identifying a worker’s actual employer (or employers) can be a deceptively complex task. “Lead” firms often franchise their businesses or contract out work to third-party staffing agencies that directly employ workers (for example, Amazon contracts with local logistics companies to deliver most of their packages). Deciding whether those workers can hold a lead firm liable for labor law violations turns on whether the NLRB considers the lead firm to be a joint employer of the worker. The basics of the test are rooted in judicial precedent and focus on the level of control a company has over a worker. On September 7, 2022, the current NLRB published its proposed rule on the subject.

The NLRB’s proposal is a solid foundation that will help workers hold their employers accountable. It is a leaps-and-bounds improvement over the previous rule. It considers evidence of a possible joint employer’s direct and indirect control on a worker’s essential terms and conditions of employment. It also includes control through an intermediary in its definition, and properly recognizes that an entity is an employer if it possesses the authority to control—regardless of whether that control is actually exercised. 

To improve the rule and ensure that companies do not use modern surveillance as a loophole to avoid responsibility under the NLRA, the NLRB should include surveillance and monitoring as part of its regulatory test for joint employer status. It could do so by adding these terms to the proposed rule’s list of “essential terms and conditions” of employment over which a joint employer might have control.

In the days before sophisticated surveillance technologies, companies that wanted to exert control over its workers – usually with the goals of increasing worker speed and imposing discipline – had to hire additional on-site supervisors to monitor and manage those employees. This practice proved effective, but imposed reciprocal (and sometimes costly) obligations on employers. Judicial precedent had long recognized on-site supervision as a hallmark of a traditional employment relationship, and so companies could exert increased control only by adhering to traditional employer responsibilities like liability under workers’ compensation, wage and hour, and labor statutes.

No longer. More and more, companies seek to abdicate their responsibilities as employers by “domestically outsourcing” their workforces through temporary staffing agencies, contractors, and franchise models. Under these new arrangements (collectively termed the “fissured” workplace), companies look to offload the costs and liabilities inherent to being an employer onto other entities and onto workers themselves. At the same time, however, the companies implement surveillance technologies and practices that allow them to retain control over workers. Especially in situations where the surveillance itself negatively affects working conditions, this prevents workers from exercising their rights under labor law to file complaints and bargain with the employer who has the power to remedy their problems. 

To understand how this plays out, consider McDonald’s. McDonald’s is mostly a franchise business, which means that the ubiquitous golden arch stores are primarily owned and operated by individual franchisors, who hire their own employees, rather than the multinational corporation. Instead of directly employing store managers and their employees, McDonald’s purports to be involved in a business-to-business relationship with the franchise owner. However, even though McDonald’s is not the workers’ immediate employer, the company enforces strict policies about myriad facets of worker conduct and franchisee management.

That control has strengthened in recent decades as McDonald’s increased surveillance over its franchisors’ employees. In the 2010s, McDonald’s started requiring franchises to implement various surveillance technologies in their businesses. For example, the company installed point-of-sale technology on franchisee cash registers, which allowed headquarters to monitor transaction speed and frequency. 

Other technologies prescribed how franchisees set employee schedules and screened job applicants, and even how workers are expected to address their customers. For example, a McDonald’s worker interviewed by Jobs With Justice explained how headquarters and her franchisee boss monitored her to ensure that she asked drive-thru customers whether they would use the McDonald’s app for their orders. Similarly, she claimed that cameras are used to enforce cooking and cleaning standards. 

In 2014, the NLRB’s General Counsel issued a complaint against McDonald’s for alleged labor law violations that centered on the company’s retaliation against workers for their participation in the “Fight for $15” movement. The General Counsel alleged that McDonald’s surveilled, fired, and disciplined workers over their protests for higher wages, which is activity that Section 7 of the National Labor Relations Act (“NLRA”) protects.

Not only did McDonald’s deny having participated in the alleged conduct, the company also denied possessing any labor law obligations to McDonald’s workers whatsoever. The company claimed that the workers were employed by the franchisees alone, and therefore McDonald’s was not liable under the NLRA. In a settlement agreement negotiated by a conservative NLRB General Counsel, McDonald’s was allowed to absolve itself of joint employer liability for the labor law abuses. 

Similar situations happen across the economy — and not just in franchise businesses. Amazon’s delivery drivers, for example, are mostly employed by third party contractors. Amazon disclaims labor law liability for these workers despite the intense control it exerts over them through on-truck camera surveillance, route planners, and disciplinary processes that even include automated emails that fire workers.

One Amazon delivery driver we spoke with complained of the control and wage theft he is subjected to via Amazon’s new artificial intelligence-enabled Netradyne cameras. According to him, the company fines them every time they commit what Netradyne considers a “traffic violation.” These fines are deducted from their salary incentives, cannot be appealed, and are issued without context. “If I make a hard brake to avoid a collision in a situation not caused by me, I get fined…If I do not sign the fine, I get fired.” These are effectively unauthorized deductions, and are illustrative of the intense control that the company possesses and exerts over workers who are supposedly not its employees.
Our hope is that the proposal described in our comment will help enable workers to exercise their NLRA rights against companies that use surveillance technology to control day-to-day workplace realities even while disclaiming a traditional employment relationship.

Amaury Pineda is a Policy Analyst at Jobs with Justice.
Reed Shaw is a Policy Counsel at Governing for Impact.